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Nearly three-quarters of Fortune 500 companies booked profits to tax havens in 2014, with just 30 companies accounting for 62 percent of earnings stashed offshore, according to “Offshore Shell Games,” released today by the U.S. PIRG Education Fund and Citizens For Tax Justice. Collectively, the companies reported booking $2.1 trillion offshore for tax purposes.
As the discussion of tax reform heats up, both in Congress and on the campaign trail, this report provides important details about a major problem with the current tax system. The report estimates that based on the low tax rate being paid on these offshore profits, most of which are in tax havens, we could reap $620 billion if corporations were to pay the full rate on those profits.
“When corporations dodge their taxes, the public ends up paying,” said Michelle Surka, program associate with the United States Public Interest Research Group Education Fund. “The American multinationals that take advantage of tax havens use our roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers.”
"All too often, corporations’ offshore cash isn’t offshore at all—it’s right here in the United States,” said Robert McIntyre, director of Citizens for Tax Justice. “Corporations are using skilled tax attorneys to make it appear on paper that their U.S. profits, and their U.S.-based cash, are being earned, and kept, in foreign tax havens. The tax code makes this scam possible. Incredibly, Congress is considering pouring salt on the wound by giving companies a special low tax rate to ‘repatriate’ profits that, in many cases, are likely already here.”
Every year, offshore tax loopholes used by U.S. corporations cost $90 billion in lost federal tax revenue. The new study shows that while most very large companies use tax havens, a small subset of industries, particularly the high tech, pharmaceutical, and financial industries, are most aggressive about using offshore tax havens to avoid taxes.
Key findings of the report include:
- At least 358 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2014. All told, these companies maintain at least 7,622 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,225 tax haven subsidiaries.
- Many of the corporations report fewer offshore subsidiaries than they have disclosed in previous years, all while actually holding more money offshore than in the past. Some corporations are likely failing to disclose substantial numbers for all of their subsidiaries, while others are likely holding more money in fewer subsidiaries. Bank of America, for example, reported having 264 subsidiaries in 2013. In 2014, the bank reported just 22 subsidiaries, but had actually increased its offshore holdings by $200 million.
- Bermuda and Cayman Islands remain the most popular tax haven jurisdictions. About 60 percent of companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands.
- The reported earnings of these Cayman Islands subsidiaries is not just implausible, it’s impossible. American multinationals collectively claim that earned profits in Bermuda and the Cayman Islands equal to 1,643 percent and 1,600 percent respectively of each country’s entire GDP or yearly economic output.
- The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.4 trillion overseas. That is 65 percent of the more than $2.1 trillion that Fortune 500 companies together report holding offshore.
- Only 57 companies disclose the amount they would expect to pay in U.S. taxes if they didn’t report profits offshore for tax purposes. All told, these 57 companies would collectively owe $184.4 billion in additional federal taxes, equal to the entire state budgets of California, Virginia, and Indiana combined. The average tax rate the 56 companies currently pay to other countries on this income is a mere 6.3 percent, implying that most of it is booked to tax havens.
Companies that were highlighted by the study include:
- Walmart publicly reported operating zero tax haven subsidiaries in 2014 and for the past decade. Despite this lack of reporting, over the past decade Walmart’s accumulated offshore profits have grown from $6.8 billion in 2005 to $23.3 billion in 2014, and in reality the corporation operates as many as 75 tax haven subsidiaries.
- American Express officially reports $9.7 billion offshore for tax purposes on which it would otherwise owe $3 billion in U.S. taxes. American Express currently pays only a 4 percent tax rate on its offshore profits to foreign governments, suggesting that most of the money is booked in tax havens levying little to no tax. American Express maintains 23 subsidiaries in offshore tax havens.
- Pfizer, the world’s largest drug maker, operates 151 subsidiaries in tax havens and officially holds $74 billion in profits offshore for tax purposes, the fourth highest among the Fortune 500.
The report concludes that to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, and increase transparency.
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